Pulling off mega deals is always tough. But in the case of Dow Chemical's (NYSE: DOW) acquisition of Rohm & Haas Co., the process was a rollercoaster. Struck before the financial system went into cardiac arrest last year, the transaction resulted in a lawsuit. The main reason was the implosion of Dow's joint venture with a Kuwaiti state-owned company.

Yet, Dow was able to resolve things, albeit with a complex arrangement. The new strategy involved preferred shares, new short-term financings and sales of various divisions, such as the unloading of the Morton Salt unit.

Dow Chemical (DOW) is raising $1.63 billion by selling common stock. But it really needs more money than that. Perhaps in the current credit market the interest rate it would have had to pay on debt was simply too much.

Reportedly, $1 billion will be used to reduce debt it is taking on to buy rival Rohm and Hass. But the total purchase price of the transaction is $16.5 billion. Dow tried to get out of the deal. The margins in the chemical industry were ruined by the recession, but the document it signed with Rohm & Hass was airtight. Dow will almost certainly end up overpaying and will be burdened with a mammoth debt load in the process.

Back in July, Dow Chemical Co. (NYSE: DOW) agreed to pay $15.4 billion for Rohm & Haas Co. (NYSE: ROH), a top specialty chemicals operator. At the time, it looked like a sign that confidence was coming back into the system.

But, of course, the smart money was proved wrong – once again -- as the deal fell apart. So, this week Rohm & Haas has filed a suit against Dow to force the deal to happen. You see, the deal was supposed to close Monday.

The legal action rattled investors: On Monday, Dow's stock fell 7.61% to $13.24 and Rohm & Haas' stock was down 13.25% to $57.10.

I recently put together a report of stocks to avoid in 2009. In compiling the list, I used general themes that I thought would struggle during the coming year. At the top of the list were chemical companies.

Though not on the list of specific stocks to avoid, I certainly did consider calling out Dow Chemical (NYSE: DOW) as a stock to avoid in the coming year. That would have been insightful, as shares of DOW lost nearly 20% of their value due to the termination of a joint venture project in Kuwait

The proposed K-Dow Petrochemicals was formed to help Dow reduce exposure to the highly cyclical petrochemical plastics business. More importantly, the $17.4 billion venture was slated to provide Dow some much needed cash, including $7 billion up front.

That cash was going to be needed in Dow's yet-to-be-closed acquisition of Rohm and Haas Company (NYSE: ROH). That deal is currently valued at just over $15 billion and would have been much easier to swallow with the K-Dow deal intact.

Now, legitimate questions are being raised as to whether the Rohm and Haas deal will close. Dow is claiming, and had previously claimed, that it did not need the Kuwait deal to fund the acquisition.

Dow Chemical (NYSE: DOW) announced it will acquire Rohm and Haas (NYSE: ROH) for $78 per share.

DOW July option implied volatility is at 34; August at 41; above its 26-week of 30 according to Track Data, suggesting larger price movement.

ROH July and August option implied volatility of 38 was above its 26-week of 30 according to Track Data, suggesting larger price movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

Accredited Home Lenders (NYSE:LEND) volatility Spikes as LEND collapses 15%. LEND, a mortgage company originating, financing, securitizing, servicing and selling non-prime mortgages, is recently down $1.95 to $10.97. LEND August option implied volatility of 155 is above its 26-week average of 78 according to Track Data, suggesting larger price risks.

Rohm and Haas (NYSE:ROH) volatility stays elevated after reporting 2Q earnings of $161M. ROH operates five business segments: powder coatings, salt, electronic materials, performance materials and specialty materials that generated sales of $2.19 billion in the second quarter. ROH is recently up $.40 to $60.74. Goldman Sachs CO says "ROH continues to prove the benefit of its portfolio and geographic diversification as strength in Asia and Europe offset the weakness in the US. ROH August option implied volatility of 30 is above its 26-week average of 22 according to Track Data, suggesting larger price risks.

Daily Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

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